Hedge funds that seek to profit by buying up distressed debt of poor or strapped-for-cash nations at deeply discounted rates and then using legal systems to win up to a 400% profit are commonly referred to as “vulture funds.” There are several of these types of hedge funds suing Argentina after purchasing cheap Argentine debt when the nation defaulted on roughly $81 billion in 2001. At the time, Argentina’s unemployment numbers were soaring and the nation’s financial status mirrored Greece’s current financial woes. Argentina restructured its debt at about 30 cents on the dollar. About 92 percent of bondholders took this deal. As the nation began to come out of economic decline, creditors who restructured have seen the value of their bonds increase. The holdout hedge funds who are suing Argentina have refused the deal several times and continue to sue for the full amount.
France filed an amicus brief to the U.S. Supreme Court in support of Argentina’s request. German courts sided with Argentina and rejected similar hedge fund claims to Argentine assets in Germany. The IMF weighed in on the case saying that the result would have major implications for how future sovereign debt is restructured. Additionally, the World Bank noted that vulture fund behavior threatens financial recovery in fragile economies. During the course of the case, formerly before the 2nd U.S. Circuit Court, the U.S. Government filed a friend-of-the-court brief noting a ruling against Argentina could make it much harder for countries in financial recovery or countries facing economic stresses to access credit and debt swaps.
“These hedge funds may have mountains of money, but they are morally bankrupt,” stated LeCompte.
Jubilee USA Network is an alliance of more than 75 U.S. organizations, 300 faith communities and 50 Jubilee global partners. Jubilee’s mission is to build an economy that serves, protects and promotes participation of the most vulnerable. Jubilee USA has won critical global financial reforms and more than $130 billion in debt relief to benefit the world's poorest people. www.jubileeusa.org